While double-digit growth in the systems integration services market is a thing of the past, a recent report from Framingham, Mass.-based IDC Ltd. indicates that this market will start to recover in the second half of 2003, and grow six per cent in 2004.

The study, entitled Worldwide and U.S. Systems Integration Services Forecast and Analysis 2003 – 2007, predicts that the worldwide integration market will increase from about US$65.5 billion in 2002 to US$82.8 billion in 2007 – a compound annual growth rate of 4.8 per cent.

Jim Westcott, senior research analyst at IDC Canada Ltd. in Toronto, said Canada’s piece of this pie is forecasted at about $2.8 billion in 2003.

“Our expectation is that between 2003 and 2007 there will be a positive growth rate of 2.3 per cent per year,” he said. “So there is some expectation for growth going forward, but the growth rate we have now is a lot lower than what we had forecast last year.”

Westcott said economic conditions in Canada are not conducive to market growth.

“A lot of these project-based services categories (including systems integration services) are tied not only to discretionary spending, but profitability. And because profitability has been under intense pressure for the last couple of years, companies don’t have a lot of money that they can throw at big integration projects,” he said.

IDC says customers are apprehensive about making large IT investments without fully understanding their return on investment, and not enough “hot” technology exists to drive growth in this sluggish market. In addition, IDC says systems integrators are looking at new ways to cut costs from their delivery models in order to stay profitable. This includes using alternative delivery centres, offering flexible pricing structures and building offshore capabilities.

According to IDC, building offshore capabilities will become a requirement soon, which reflects how the systems integration business model is transforming, with integration services work continuing to be in demand but becoming increasingly buried in larger outsourcing deals.

But Westcott said this is less true for Canadian companies.

“The primary market for offshore services is the United States,” he said. “The Canadian [outsourcing] market is actually doing quite well in Canada, even through the last couple of years. But it’s been primarily with Canadian-based providers or international providers that are present in the Canadian market.”

In fact, he said Canada is benefiting from this offshoring trend as American companies start to sign outsourcing agreements with Canadian providers.

“Canada is sort of that near-shore alternative to the pure offshore,” he said

SIDEBAR:

Outsource this!

That’s what many IT staffers say upon finding out their companies plan to farm out IT tasks to outsiders, Stamford, Conn.-based Gartner Inc. warns. Even worse, few CIOs realize the resentment that outsourcing triggers among their IT employees.

The results of this employee unrest, such as lessened productivity, reduced commitment, diluted trust and even strikes, can significantly reduce the benefits the company might get from the outsourcing, Gartner said in a note published in mid-April.

Gartner suggests helping employees affected by the decision to outsource to design new roles for themselves, or help provide access to new skills for them.